POTENTIAL MERGER (Potential Merger)

9 Months Ended

Nov. 09, 2013

Potential Merger

Potential merger

POTENTIAL MERGER

13.  POTENTIAL MERGER

During the second quarter, the Company announced that it had entered into a merger agreement with Harris Teeter Supermarkets, Inc. under which the Company will purchase all outstanding shares of Harris Teeter Supermarkets, Inc. for approximately $2,500 in cash.  In the second quarter of 2013, the Company also entered into an unsecured bridge loan agreement (the “Bridge Loan Agreement”) to provide an additional source of financing, if necessary, to fund a portion of the merger with Harris Teeter. The Bridge Loan Agreement provides the Company the ability to borrow, based on certain conditions, including the consummation of the Harris Teeter merger, up to $850, and matures 364 days after closing.  The Company expects to fund the merger through a combination of cash on hand and the issuance of short-term and long-term debt.

Borrowings under the Bridge Loan Agreement would bear interest at the three-month LIBOR rate plus an applicable margin determined by the Company’s credit ratings, as determined by S&P and Moody’s.  The applicable margin will also increase by 25 basis points every 90 days after funding. The Company will also pay a funding fee to each lender equal to 0.5% of such lender’s loan advance on the closing date of the financing, and duration fees on any loan amounts still outstanding of 0.5%, 0.75% and 1.0% on each of the 90th, 180th and 270th day, respectively, following the closing of the Harris Teeter merger.  The Company also will pay an annual ticking fee of 0.15% of the amount the lenders have committed, regardless of whether any borrowings are made under the Bridge Loan Agreement.  The Bridge Loan Agreement contains covenants, which, among other things, require the maintenance of a leverage ratio of not greater than 3.50:1.00 and a fixed charge coverage ratio of not less than 1.70:1.00.  The covenants and representations and warranties in the Bridge Loan Agreement are substantially the same as those contained in the existing $2,000 unsecured revolving credit facility.

The Company may repay borrowings under the Bridge Loan Agreement in whole or in part at any time without premium or penalty.  The Bridge Loan Agreement is not guaranteed by the Company’s subsidiaries.

The pending merger is expected to close during the fourth quarter of fiscal year 2013, subject to Federal Trade Commission review and certain customary closing conditions.